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The Enterprise App Economy

June 8, 2013  /   No Comments

Editor’s note: Aaron Levie is CEO and co-founder of Box. Follow him on Twitter @levie.

Next week, thousands of developers will converge on WWDC, the vast majority representing companies and products that didn’t exist before the creation of Apple’s iPhone and App Store.

They’ll talk about the future of mobile gaming, photo sharing and, of course, Snapchat. But what likely won’t be center stage is how transformative Apple’s devices and ecosystem have been in the enterprise.

The enterprise world was once solidly dominated by PCs. Today, nearly all of the Fortune 500 are testing iPads. Combined, Apple and Android (and Android’s partners) represent nearly 91 percent of smartphones and tablets used today. And it’s not just that people are buying a new category of device; they’re actually buying fewer PCs in aggregate, as well. In the last holiday season, PC shipments sunk 6 percent, the first decrease in an entire decade.

Responding to this influx of new hardware and the unpredictable – yet frequent – revolutions in the market, the vast majority of enterprises now support a Bring Your Own Device (BYOD) model. But despite the ubiquity of these new devices, the enterprise app ecosystem is nascent compared to its consumer counterpart. There are success stories, sure, but the potential for enterprise app distribution and monetization has barely been tapped.

Why don’t we have any enterprise Angry Birds?

From The PC Era To The Post-PC Enterprise

From the late 70s, the start of the PC revolution, to 2007, the beginning of the post-PC era, the way enterprises bought and used technology remained largely unchanged. The proliferation of PCs created a long-standing oligopoly led by Microsoft and its OEMs, enabling the rise of only a handful of giants – like Oracle, Siebel, PeopleSoft and Lotus. Smaller players were left out of a complex ecosystem that was designed to build up software empires, help IT buyers avoid too much chaos, and solve the rudimentary technology challenges emerging in corporate America.

Like all other important shifts in technology and society, the move from a PC-driven enterprise to a post-PC one isn’t linear; it will be a giant step-function change. The entire premise of post-PC computing is driven by a new set of capabilities and use cases that are only just being realized by the earliest adopters.

Unlike the back office, where most work gets done in a typical workspace, the front office is no longer about the office at all: It’s mobile, it’s on the road, it’s at customer sites, directly at retail stores, on airplanes, and in subways. And all-new technologies from all-new vendors are emerging to power these business use cases.

Doctors are pulling up medical images on their iPads with VueMe; field workers are submitting forms from their mobile devices; airline pilots are going paperless; sales people are Webexing on the go; federal judges are pulling up court documents on iPads; and distributed teams are getting connected on Lua.

Even though emerging enterprise apps are eating our iPads, they’re not yet eating the legacy vendors’ lunch.

And instead of applications being simple ports of their PC analog, an entirely new breed of tools and apps will be created for tablets and mobile devices in the enterprise. Chris Dixon suggests, “If the historical pattern repeats, productivity apps that are ‘native’ to the tablet will be invented.”

For the most part, traditional players like Microsoft, Oracle, SAP, IBM and others are nowhere to be seen. When apps are just a quick search and tap away, vendor lock-in becomes a relic of a different computing paradigm. End users can web conference, grab CAD software, access blue prints, invoice customers, and pull up a new CRM app in minutes. Apps stand out based on their design, usability, simplicity and value – not simply because of their attachment to an enterprise license agreement.

In a previous era, such change might have taken years to make its way through an enterprise – slowed down by infrastructure deployments, software and maintenance contracts and compatibility issues. Today, things are quite different. “Any new product introduced follows a different adoption curve in the enterprise… And enterprises today are looking at a whole different world,” Steven Sinofsky recounted recently at the recent D11 conference.

Welcome To The Enterprise App Economy

For as much money as is poured into enterprise software every year – $297 billion to be exact – mobile apps have barely made a dent in spend today. While BYOD brought a new set of devices into corporate America, it so far hasn’t dramatically changed software purchasing behavior. You know those tens of billions of dollars generated by mobile apps? They’re going to the consumer space, not the enterprise.

In gaming, we’ve seen small upstarts like Angry Birds or Supercell generate hundreds of millions of dollars a year, producing overnight disruptors to traditional gaming companies. In the communications space, services like WhatsApp, Line and others have built disruptive business models to traditional communications services, cutting billions of dollars out of the traditional carriers and making large sums in the process.

Even though emerging enterprise apps are eating our iPads, they’re not yet eating the legacy vendors’ lunch. Why?

We’re benefiting from dramatically reduced barriers for building and distributing mobile apps, but the way enterprise software is procured and sold (and thus monetized) remains mostly unchanged. While consumer apps can thrive on $9.99 (or even $.99) one-time downloads, in-app purchases, display ads and e-commerce, enterprise apps haven’t flourished under the same economic models.

In the enterprise, a different set of dynamics are in play. While mobile apps ultimately serve – and are acquired by – the end-user, individuals outside of IT often don’t have the budget or responsibility to bring in or standardize on (paid) applications easily. The whole point of post-PC is speed, efficiency and simplification, yet the way enterprise software is bought today is anything but.

Responding to this, we’ll need more scalable approaches for developers to sell their wares broadly in an organization and get paid for their services without friction – methods with far lower barriers than how most enterprise software is typically procured. We’ll also need better ways to create annuity revenue streams for mobile app developers, better aligning long-term customer value with the apps themselves.

Unlike in the consumer market, where you care what apps your friends are using, we’ll need to make it easier for apps to be discovered and shared across a company. And we’ll need new capabilities and offerings from the operation system players to support this new economy. In return, apps will need new levels of guarantees, SLAs and security models to gain the trust of enterprises.

When these new models are unlocked, we’ll begin to see far more innovation, and adoption, in the post-PC app world.

Fortunately, given the rapid growth of post-PC devices and apps, we can rest assured that economics for developers will eventually match the kind of scale and potential of these markets. Tablets have only been around for three years, and are already reaching 200 million units sold a year – a feat that took the PC 27 years to accomplish.

And the addressable market for software vendors is rapidly expanding: by 2015, the number of mobile workers will surpass 1.3 billion. For app developers, this brings unprecedented and previously unreachable scale to building technology for businesses. The potential of the enterprise app economy is massive, and we’re just getting started.

Read on TechCrunch: 

The Enterprise App Economy

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